Schaeffler India Ltd

NSE:SCHAEFFLER

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, good day and welcome to Q2 CY '22 Earnings Conference Call of Schaeffler India Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Gauri Kanikar. Thank you and over to you, ma'am.

[Gauri Kanikar, executive]

Good morning, everyone. Thank you for joining Schaeffler India Limited's Earnings Conference Call for the Second Quarter and 6 months ended 30th June 2022. We have with us from the management, Mr. Harsha Kadam, our Managing Director and Chief Executive Officer; and Mr. Satish Patel, our Director, Finance and Chief Financial Officer. Mr. Kadam will first take us through a short presentation on the results. After which, we open the floor for questions.

Thank you and over to you, Mr. Kadam.

[Harsha Kadam, executive]

Thank you, Gauri. Good morning to all of you. A very warm welcome to this investor call and presentation for the second quarter and the 6 month ending for the year 2022. I have with me Satish.

[Satish Patel, executive]

Hello. I'm Satish Patel. Good morning and warm welcome to all of you.

[Harsha Kadam, executive]

Before I get into the presentation flow, I wish to take the opportunity to sincerely thank you for accommodating the change in time of our investor call and that is truly appreciated. Let me now get into the call. And as I'm on the first slide, I move to the slide on the agenda wherein I would like to cover some time on the economy and the industry and give you a background as to the changes that we have seen since the last quarter. Then I would like to touch upon the business highlights for the second quarter and the 6-month year ending. After which, I will take you through the financial performance of Schaeffler India for the second quarter as well as for the 6-month period. Lastly, I would like to touch upon another subject, which is very dear to Schaeffler globally and also in India, and that is about ESG where we have started to take some measured steps already in the direction on the journey towards ESG.

So let me get into the slide on the economy and the industry. I'm on the slide which is talking about both economy and the industry. Well, we have been seeing a lot of changes on the macroeconomic scenario and I'm sure all of you are well updated about the developments globally as well as locally. Now having said that, the GDP which is projected to grow at 8%, already there have been talks of some amount of moderation here considering the fact with all the geopolitical developments that are happening in the West and the chip shortages which still continue to affect businesses in many areas today. With all that, we still believe that India continues to show the resilience despite the elevated levels of inflation, which we are already facing with the oil prices still continuing to stay pretty high, and with the continued global events still continues to show a downside to the risk to the growth story, but definitely it is not a total collapse of the growth story that we see.

When we look at the industrial production, definitely 5.9 percentage of growth that you're seeing there. It's a moderate growth, but then it's still a strong growth when compared to the uncertainties that prevail around us. And when you look at the electricity and the power generations, which I will come to a little later, you will see that the industrial growth still continues to remain on track and progress well. Talking about the automotive production, what you see is 14.3% growth in the second quarter. You will see that when compared to the last quarter, of course the last quarter reference was due to the fact that we had the Wave 2 last year. So you will see a double-digit growth here. But nevertheless, there has been a strong rebound from the auto OEM manufacturers in terms of vehicle production numbers coming in the second quarter of this year. One definite concern has been the depreciation of the rupee and surely that's going to push the inflation levels up, which are already there.

And now are the inflation levels going to dampen the growth story or moderate the growth story and to what extent will it get moderated? It's a question of time and the measured steps that the government is planning to intervene and take to correct the inflation levels in the country. Moving on, I move to the next slide which talks about the core sector performance and what you see here is good sustained performance from the industry sector. When you look at the cement production when you look at the first 5-month period, you will find that cement sector has definitely performed better than the same period last year with 11.6% growth story. Talk of steel and there again we see a positive growth to the extent of 6%. Coal production and mining has been picking up pretty well with 11% growth when compared to last year.

What is also heartening is to see the power generation in the country, which has been at a pretty good level especially in the second quarter beginning. You would have seen that the April and May months have registered very strong power generation in the country clearly indicating the increased economic activity in the country. Moving on, I would talk a little bit about the automotive sector and this is where you see a mixed bag coming out. When you look at the 2 and 3 wheelers the first quarter of this year and the second quarter, you would see the second quarter some small recovery beginning to happen already there although if you just see the moderate growth over last year is also still just about 1.7%. But nevertheless, it is definitely showing a positive trend. With the festival season that is coming up in the next quarter, it needs to be seen how the sector is going to perform.

Look at the passenger vehicles and here again we have seen some signs of recovery with some of the big OEMs and clearly the numbers speak for themselves with May and June with about 338,000 vehicles being produced in the country and 367,000 respectively for May and June registering a clear 15.1% for the 5-month period -- 6-month period that we compare with the previous year. Commercial vehicles did definitely have some slowdown in the month -- between April and June in the second quarter when compared to the first quarter. But nevertheless, compared to the last year same period, you will find a clear 52% growth in production numbers in the commercial vehicle sector. Tractors, which for the last 3 previous quarters excluding the quarter 2 of this year, we had seen that it was on a down-slide, has turned around and we have seen the tractor production in the country crossing the 100,000 number for the month in the month of June and thereby narrowing down the gap that was there compared to the levels that the sector was in the previous year.

After registering a strong growth, we have now seen in the second quarter a small recovery on the tractor segment. And with the good monsoons that are prevailing in the country now, we believe that this sector should continue to show the positive growth trend going forward as well. I now come to the business highlights for the second quarter and the 6 months ending.

So in summary, what we saw was a very strong sales development across all the businesses we at Schaeffler India play the game in. And we had some good [Audio Gap] for trade business wins, which we continue to work with some of our prestigious automotive OEMs and also our industrial customers and which I will talk to you in the next slides. In terms of our financial performance, we have been able to maintain the consistency that we have been delivering in the last few quarters successively and also we were able to increase the CapEx spend in the quarter, which I will come to the numbers in the next few slides.

One important activity that we had initiated and which came to a closure in this quarter is the divestment and hiving off of the chain drive business globally. And we now completed the formalities in terms of a Business Transfer Agreement with Catensys India, who is the new owner of the business now, and that was concluded in this quarter. On the sustainability front, Schaeffler as you all know stands committed to its carbon neutrality targets to get to 0 by the year 2040 and with that, we have taken measured and focused targets across the globe and India is no exception to that. And having said that sustainability being at the core of what we do, we have now initiated some more actions and events have taken place, which I will talk to you. 2 such events I would like to cover in the call today.

Of course it goes without saying the efforts that the Schaeffler India team is putting in to deliver the best quality product with the good performance levels and also innovative solutions, the customers have recognized with a number of awards. Just to take an example. In the second quarter alone, we had 4 such prestigious awards coming from very important customers clearly indicating the focus that we have brought on quality not just of the product, but of our services and also the agility in the entire value chain that we have brought in to ensure the customers a service better than before. I would also like to point out that we still continue to see the headwinds. Input costs continue to grow. With the steel price increases that came in the second quarter, the pressures definitely on the input costs become a little more visible. And not to mention the inflation that is prevailing in the country, which to some extent becomes a dampener in terms of the demand.

With that, so how was the performance? As you can see, we closed the second quarter with INR 1,748.8 crores in terms of revenue. That was a clear 41.8% higher than the same period last year -- same quarter last year. And if one were to look at the performance comparing to the Q1 of 2022, we posted a much better -- 11.6% better than the previous quarter. Talk of the EBIT margin and here again we were able to bring in INR 274 crores to the bottom line and clearly as you can see that's 15.7% of EBIT margin in the second quarter and when you compare that with the same period last year, we were at 13%. A significant jump in the EBIT margin in the last 1 year. Obviously this has come on the backdrop of our mix as well as the sales revenue that we have been able to generate not to mention of course the cost control measures and countermeasures that we have put in place, which we continue to ascertain.

The profit after margin, as you can see here, was INR 225.8 crores coming into the system and profit after tax margin of 12.9% in the second quarter was definitely better than the 10.4% which was there for last year same quarter. On the free cash flow, if you remember the last quarter, we were in a marginally negative free cash flow situation. This quarter in the second quarter we have corrected that and we have been able to bring in about INR 80 crores of cash into the system. Having said that, of course we still have some way to go in this and clear focus and actions are in place to recover the situation on the free cash flow. I move to the next slide where I would like to highlight some of the key business wins that we were able to get in this quarter. And our clear focus on penetrating more and more into the electric vehicle segment has started to pay off. Even with our foundation products like bearings and clutches and transmission products, we have been able to make inroads into the new vehicle applications as such.

So some key wins in the commercial vehicle sector and some of the passenger vehicle sector for the wheel bearing applications not to mention of course in the clutch system as well, we have been able to make some penetrations here. Talk of the automotive aftermarket and here we continue our journey by adding a new product every quarter like we have been doing every quarter and some business wins that we secured as a result of the products that we launched in the previous quarter; on the front-end auxiliary drives, on the timing kits and so on. We have also brought -- added a new product in the second quarter called the center joint support and this is only going to augment our portfolio and ensure that the growth story in the automotive aftermarket continues.

Coming into industrial. Here again we have continued to leverage the linear guides center that we have put up in Baroda and this is now beginning to generate improved business results for us as well because our localization drive is clearly in that direction and we have continued to do that. Not to mention of course the angular contact ball bearings that we have begun to now manufacture locally as well. So this is enabling us to get some wins within the 2-wheeler sector and the industrial -- and the machine tool industry sector. And not to mention of course the wins that we have secured on the cylindrical roller bearings and the spherical roller bearings in the auto segment which we have succeeded to gain in the second quarter. I move to the next slide and this is a little more light that I wish to throw on the divestment of the chain drive business. As you all know, we were manufacturing this product in our Pune plant.

And the rationale behind the carve out and divestment has been a strategic direction that globally as Schaeffler, we are moving in the direction of the new technology shifts that are happening, be it the electric vehicle technology that is going to replace the ICE engine as well as the fuel cells technology that is also going to come on board of the mobility sector. So having said that, we have started off the journey towards transitioning our manufacturing footprint as well in the direction of the new emerging technology and this is clearly coming on the back of our commitment that we want to become carbon neutral by the year 2040. So the sale to Catensys India Private Limited was executed and the Business Transfer Agreement was formalized on the 29th of June 2022. And now the entire business, chain drive business, where the revenue of the business in '21, as you can see, was about INR 107 crores with a network of about 100 -- with an INR 15 crore network and on a slump sale, this was transferred out to Catensys India business.

Moving on, I would like to come into the financial highlights for the second quarter and also some color on the 6-month results. So I am on the slide, which is talking about the revenue from operations. And as I said earlier, for the second quarter we have been able to deliver INR 1748.8 crores in terms of sales revenue, which is a clear 11.6% better than the preceding quarter and 41.8% better than the same period last year. Now just to throw some light on where is this revenue coming from? And if you were to refer to the graph below, the revenue bridge. So in the second quarter 2021, we were able to develop INR 1,332 crores and that in this quarter, we have been able to give INR 1,748 crores. Out of which, the large contribution came from the automotive technology area. INR 195 crores coming from auto tech, INR 52 crores coming from the automotive aftermarket and INR 161 crores coming from the industrial sector. Exports too have brought in about INR 106 crores. So all in all, as you can see, that all our business verticals have posted positive development in terms of growth.

Look at the sectoral split. Obviously the automotive technologies has been able to grow pretty strong and when compared to the same quarter Q2 last year, 40.2%. Automotive aftermarket grew by 54.4% and industrial by 33.7% and export has been a clear focused area for us and we have posted in the second quarter also when compared to Q2 of last year a clear 62% growth. At a half yearly level, Automotive Technologies continues with a growth of about 22% and automotive aftermarket at about 34% and industrial coming in at about 28%, export clearly at 61.6%. So to sum it up. Our business mix, which is a very good balanced portfolio that we have as you can see from the pie chart below, with 39% of our business revenue coming from automotive technology, 37% coming from our industrial and exports which we have seen some significant growth in the couple of last quarters and we have automotive aftermarket hovering around 9% to 10% of our business.

So the business portfolio, which is pretty well balanced, helps us to continue to sustain the growth story. Moving forward, some light on the earnings quality that you see here. As I said earlier, we've been able to bring in about INR 274 crores EBIT number posting a 15.7% EBIT margin. When you compare that with the first quarter, which was at 16.6%, definitely there is a small drop in the EBIT margin. However, this is attributed to the chain drive increases that began to come in the second quarter and the provision migration that we have to do to that effect. So it's only a marginal drop that we have seen. Otherwise you will see that the growth story still continues here again, quarter-on-quarter growth in terms of value has been about 5.3% and a year-on-year growth at a level of almost 71%. So having said that, so where is the EBIT margin coming from, the INR 274 crores versus the INR 160 crores that was delivered last year same quarter.

The maximum contribution has come in -- INR 175 crores coming in because of the sales revenue that we have been raising as well as the countermeasures that we have put into place in terms of managing our overheads and cost not to mention of course the recovery of the steel prices that we are already on the journey. We did have some marginal impact on the employee cost and this is coming on the back of the expansions that we have been doing with more people coming into -- on the roles of the company. And of course we do have some other income which is marginally impacted. But nevertheless, it has still been a sustained growth slowly in terms of the EBIT margin. Talk about the profit after tax. As you can see, we've been able to deliver 12.9% PAT margin, which is slightly lower than 13.2% that we delivered in Q1. But however, when I look at the quarter-on-quarter growth in value terms, you still find that we have delivered 9% better number on the PAT and that on a year-on-year growth level is 76.2%.

So all in all, I must say a pretty reasonably good performance in terms of the financial performance of the company. And I move to the next slide, which gives you more information on the CapEx, the working capital and the free cash flow. Working capital certainly we see some increases that have happened in the second quarter and as you can see here at INR 1,252 crores. Well, we are getting our hands around it and currently we stand at about 20% of the sales, which has been a marginal increase over the previous quarter. But definitely, we are confident that we will -- we have actions in place which is going to definitely address the working capital situation. Some concerns that were experienced during the second quarter was due to the account receivables being a little on the higher side, but that is something that we will get back it on track.

Talk about CapEx. The second quarter has been pretty strong where our stand-alone in the quarter spend on CapEx as a percentage to sales went up to 8% compared to the previous quarter or the previous year as well, which used to be around 3.5%, 4%. So we have been able to increase our spend in the capacity expansions and the localization initiatives that we have been trying to do and we expect that we will continue to sustain this kind of CapEx spend going forward as well. I touch upon the free cash flow that we started off quarter 1 with a slightly lower free cash flow generation. But then we have bounced back in the second quarter and we've been able to bring in almost INR 80 crores of cash into the system. Is that enough? Well, we continue to drive this and we are confident that in the succeeding quarters we will get back on track on the cash flow generation.

With that, I'll move to the next slide, which is giving us the key figures on some of the performance indicators. And I would like to draw your attention to the column first which is to Q2 '22 and then to the column which is titled as 6 months 2022. And just to do a comparison of a 6-month period. Even though the quarter has registered in terms of EBITDA margin 18.6% as you can see, at a 6-month period we are still at 19.2% which is pretty good level to stay at. And EBIT margin, which was at 15.7%; at the 6-month period, we still stand at about 16.1%. Look at the revenue growth and what we find is for the quarter -- for the 6-month period we are now at INR 3,316 crores at the end of 6 months. And when you look down below at the PAT margin for the 6-month period, we're at a strong 13% profit after tax margin. So all in all, very good performance indicators that you see on the slide here for the quarter and for the 6-month period.

I now move to the 2 initiatives that I talked about and the events that we had in our journey towards ESG. Schaeffler being clearly committed in its targets towards getting to carbon neutrality. Our focus clearly remains on the environment, on the social, as well as on the governance aspect of how we run our business. Now having said that, I would touch upon only the social part of the initiative and the environmental part of the initiative today. So as part of a global initiative, Schaeffler globally on 22nd of June had held an event called the Climate Action Day and this was to get all the complete 88,000 employees across the globe to stop work for 90 minutes, sit down as a team broken into groups, get their heads together and identify opportunities how can each one as an individual play a role in making this planet more greener and that begins with each one of us.

And there was a 90-minute workshop where each and every employee participated and there was a lot of buildup to that workshop with a lot of preparatory workshops that were run, number of facilitators that could help facilitate the workshops and we had more than 100 sessions in India that was run. And as a result of this, 2,000 ideas that came out bottom-up have all been captured. Now these are being accumulated and collated so as to draw clear action planning and then execution as to how Schaeffler India can contribute its might in a small bit towards the carbon neutrality journeys that we are working on. The second initiative is on the social side and the first of its kind within Schaeffler India and the first time we engaged with Indian Institute of Management Ahmedabad. And we have launched a Social Innovator Fellowship program wherein we have started to identify startups who specifically work on developing solutions for the need area and this is a social cost not driven by a profit call.

And clearly we had our initiative that we kick started in November last year, which culminated into 11 awardees coming and presenting and making a pitch to us. And I must say it was one of the most gratifying events, 600 applications received and we were able to put through a review mechanism there. The specific areas that we had targeted were education, health and nutrition, renewable energy, water conservation and waste management. And some of the winners as you can see in the logos of their company displayed below. 11 awardees were finally awarded and these awardees will be handled and coached by professors from the Indian Institute of Management Ahmedabad for a period of 3 to 6 months to enable them to scale up as well as to reach levels of excellence so that they can sustain the growth stories of these startups.

This is one step in the direction where under our CSR initiative as well we wish to participate more, promote more start-ups to grow in the country, thereby making India a better place and a better economy. So with all this challenging quarter that we had in Q2, but yet we sustained our growth story because we stayed focused on the goal that we want to continue to grow our business with our esteemed customers. And it is equally important what we do and also important how we do. And there again comes in that we continue to sustain the countermeasures that we have already put in place to ensure that we stay committed on the targets that we have set to deliver to the market plus we also continue our journey of localization as well as bringing in more product lines into India. And so our capital allocation continues to remain a priority and we will continue to increase our investment strategy going forward. With all this, we stand committed that it's not just growth that we look for. We look for delivering a sustainable and responsible growth. At the same time, we also ensure that we stay focused on our customers.

With that, I would end my presentation. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Mukesh Saraf from Spark Capital.

[Mukesh Saraf, analyst]

My first question is on the margins. We did notice that the gross margins have declined compared to the previous quarter sequentially. So the larger question is how does product mix affect the margins and is there any element of pending pass-through of raw material costs?

[Satish Patel, executive]

Thank you, Mr. Saraf, for the question. Satish Patel here. As far as your question concerns slight decline in the gross margin this quarter vis-a-vis the last quarter, it is not impacted so much by the mix. So the reason of the impact is largely because of the provision for the input cost, mainly the steel price increase in the second quarter vis-a-vis the first quarter. It's more of a cost and a little bit of the inflation impact for some of the nonproduction material that has also gone in the quarter 2 vis-a-vis quarter 1. So yes, margin level is slightly lower in quarter 2, but it is entirely attributable to this factor and not so much because of the mix.

[Mukesh Saraf, analyst]

So just in continuation with that, could you broadly give an explanation on which are the segments where we have an automatic kind of a formula-based pass-through and which are the segments where we have to kind of negotiate a pricing increase?

[Satish Patel, executive]

It's a very good question. In fact it's a mix of that so we do have a certain level of indexing for some of the businesses, mainly in automotive. And for some of the customers, it is negotiation based. Last year you would have actually noticed and we had also briefed to our investors that we were able to pass on the significant portion of the input cost to our customers. The similar situation would remain this year as well. However, there is always a time lag between the cost impact on us and the recovery from the market. So this does play a little bit of a role when we look at the performance quarter-on-quarter. But as far as whole is concerned, this should get eased out.

[Mukesh Saraf, analyst]

Got that. And my second question is on exports, we've continued to see a strong momentum there. So could you maybe just give us an update on the export side of it in terms of, say, the kind of capacities we have, what's the kind of peak revenues we can do there or any new markets, new products that we are looking to start in exports?

[Satish Patel, executive]

So exports we have been actually growing over the last few quarters. Exports now contribute 16% of the -- of our total revenue. And as far as our exports are concerned, now we have been able to actually spread our wings across the globe. Exports are to all the continents, including Asia Pacific and North America and South America, where we had not so significant presence in the past. We have also expanded the product portfolio for exports and if I touch upon some of the products where we have been focusing more for exports. Our one-way clutch, TAROL, SRBs, CRBs we have been quite strong already for exports and then there are certain developments on the machine tool size, spherical bearing, LSB and angular contact bearing. So all this product widening and the offerings actually helping in terms of the increase in the overall performance in exports and this has been quite well accepted both from the cost competitiveness point of view as well as the overall quality of the products that we produce, which are best in class.

[Mukesh Saraf, analyst]

Right. And there is no kind of a capacity constraint we have on these products for exports, right? I mean is there a level of revenue we can do over here?

[Satish Patel, executive]

Absolutely. Rather we are building the capacity and if you see our CapEx that we have spent of close to INR 150 crore in the current quarter, which is quarter 2 of 2022, large portion of that is going towards the capacity -- increasing of the capacity for exports.

[Mukesh Saraf, analyst]

Right. I just had one last clarification, last question. If I look at one of your slides and you had covered it in the opening remarks also with regards to business wins in the aftermarket segment. So I was just not sure in the aftermarket how does business wins work? Do we kind of sell it to some large distributors or how does it work?

[Harsha Kadam, executive]

Harsha Kadam here. Yes, we do work with some of the big distributors in the automotive aftermarket space. And rightfully when we launch a new product, there is a lot of engaging that has to happen and these are new products where Schaeffler only plays a role of ensuring that we stand guarantee for the quality and performance of the product. So thereby, that needs a deeper engagement with our distributor and distribution partners, which we do. And definitely the rest of the work in terms of helping the distributors to get the product to the market, the entire marketing and promotional activities that we have to go through is all handled by the Schaeffler team.

[Operator]

The next question is from the line of Sandeep Tulsiyan from JM Financial.

[Sandeep Tulsiyan, analyst]

First question is pertaining to the auto aftermarket piece. It's just an observation that as you see a stronger growth in this, your gross margins do get impacted because some of those lubricants and other products are more of traded nature. So is that a fair conclusion or otherwise the mix improvement should have been able to more than offset the raw material price increase that you saw because both the exports as well as aftermarket piece grew faster in the quarter sequentially? So if you could just help us build our understanding on this.

[Harsha Kadam, executive]

Yes, very good question. Let me just clarify there that the new businesses and the new products that we continue to add in our aftermarket story are not the only products that we bring out. Let me also apprise you that with the transition in technology that has happened from BS-IV to BS-VI in the year 2020, there has been new products that we have started to sell to the holding customers to comply with the BS-VI norms, correct; whether it is bearings, whether it is clutches or transmission products or the engine product itself. Now that the vehicles are on the roads for 2 years now, we see now that demand is also beginning to come in the aftermarket side for BS-VI compliant products and there too we have started to expand and bring in a lot of new products into the market, which I didn't touch upon because I thought we'll talk about the new product. But this is a continuous activity that we run.

So just to give you the information that in the last quarter alone we were able to bring in 2 different types of clutches complying with the BS-VI norm in the market. We also brought in our front-end auxiliary drive kit and the timing kit again complying with the BS-VI norm. We were also able to bring in some tapered roller bearings, which met the conformances to the BS-VI norm. So host of products on the foundation product if I may say so, but also being parallelly brought into the market. So the concern that the margin is going to drop, no. Certainly the margins are going to be shored up by the foundation products that we continue to bring from our own manufacture plants. What does it help is to bring in a wider portfolio of offering to our customers because our customers expect that Schaeffler as an engineering company must be able to offer a wider plateau of products and hence, we begin to add more under the SNAP program that we run for the traded products.

[Sandeep Tulsiyan, analyst]

Understood. So currently, volumes are low so we are trading and the margins are not up to the mark. But as volumes increase, you will localize and margins will improve is what you're highlighting, right?

[Harsha Kadam, executive]

Certainly. And we will continue to keep the focus on our foundation products, which is manufactured from our own plants because the need for these products is also very well accepted with the end users as well as the mechanics who service the vehicle. So we believe that -- we see that there is still a strong demand for the foundation products and that is going to continue.

[Satish Patel, executive]

And furthermore to comment to what Harsha mentioned, I think we have never announced that margins are not up to the mark...

[Sandeep Tulsiyan, analyst]

It's more of an inference, right? Sorry for that. Second, sir, question is on the content per vehicle share a road map that you mentioned starting from EUR33. You had said it will nearly double over the next few years. Where are we right now in that journey? Where do we plan to reach by end of this year? And how far are we from that EUR70 per vehicle kind of target what we had set for the company?

[Harsha Kadam, executive]

Let me take that question. And my answer to you would be a couple of things that have happened that I would like to highlight here. The first thing is Schaeffler India being nominated as one of the champions under the PLI scheme. And rightfully, as you know, the PLI was constituted fundamentally to encourage new investments to be made in the new sectors of electric vehicle, technologies or emerging technology. So rightfully we have a clear strategy moving in the direction and we have started to work on projects on the electric vehicle side with our customers, be it on the traction motor side or on the rear axle side or some of the products -- even foundation products which have to be upgraded to play the -- to participate in the electric vehicle programs. So we definitely are doing that and there's a clear focus on bringing those new products and new technologies into the Schaeffler India portfolio.

If I were to just quote, recently we were able to make a breakthrough with one new product called input shaft and this is going to one of the prestigious customers -- brand in India and we are very proud to be associated with them for the electric vehicle and the hybrid vehicle that they are launching. So all in all to cut the long story short, the content per vehicle is only set to increase. Now if you were wanting to look at a number where are we, certainly we are on the increasing trend. My conclusion would be that once we begin to deliver the electric vehicle offerings to the customers, the content per vehicle is just going to more than double. Why? Because the value of the product is more at a subsystem level and we are moving from a component to a subsystem level, obviously our content per vehicle definitely is going to increase there.

[Sandeep Tulsiyan, analyst]

So if you can give us where you are in the journey, any numerical indication that would help.

[Harsha Kadam, executive]

Well, at this point in time, I would desist from giving you a number, but you can be rest assured I believe saying the number that we will get into the EUR40 and EUR50 per vehicle category, we are well on track on that. And with the launch of more and more products for the electric vehicle applications, you will find that the content per vehicle certainly is going to go up.

[Sandeep Tulsiyan, analyst]

Got it. Last question I have from my side is of course there's been some while since the BS-VI platform has been introduced and as you highlighted, it has resulted in a lot of new products and new customer wins that we have been able to garner through this. So if you were to carve out a share of all the new products which came under the BS-VI platform, what proportion of our sales would that be representing? Just the idea is to compare whatever strong growth you've had in 3 years, how much of that is through new business wins and how much is through the existing product growth that you've had?

[Harsha Kadam, executive]

Well, I do not have the number right away here with me to clearly carve out and tell you how much effort is coming because of BS-VI fundamentally for the simple reason that there are various products in the pipeline and they are getting into business realization at various stages and various point of time. So as and when -- it's quite a bit of a challenge to measure that. But nevertheless, I take your point. We will try and find out what's the contribution due to the new products that we are launching for the BS-VI or even for that matter the new CAFE norms that is also going to kick in from 2023.

[Operator]

The next question is from the line of [ Chaitanya Shah ] from Silverline Capital.

[Unknown Analyst]

My question is broadly on exports. Given in the light of situation of what's happening in Europe right now, there was a law passed yesterday where countries are going to reduce their gas consumption by 15%. I just wanted to understand how it's going to affect the industrial activity in Europe and does that present an export opportunity for the Indian subsidiary of the parent company?

[Satish Patel, executive]

So if we understand the question correctly, Chaitanya, the question is that because of the current conditions in Europe because of this 10% or 15% fuel inflation and other impacts because of the geopolitical conditions, what does it mean to us in terms of both risk as well as opportunity?

[Unknown Analyst]

Right, right.

[Harsha Kadam, executive]

Well, Chaitanya, I was trying to understand the last part of your question where you talked about the parent company. Can you clarify that a bit? I was trying to really understand that.

[Unknown Analyst]

In terms of export opportunity, I guess the parent company has a big manufacturing presence in Europe, right? So if that sort of gets affected, do you think there can be an export opportunity for the Indian company because of the temporary disruption in the industrial activity?

[Harsha Kadam, executive]

As Satish was saying, the export business is something that is very strategic to us here in India. And we have a clear strategy for the next few years depending on what product lines we want to manufacture in India and accordingly, the investments are being made here as well. Obviously it goes without saying that the intent is to leverage and capitalize on the cost competencies that we see in India. Going forward, this is already built into the strategy that some of the products that are being made in Europe would start to ship to India and accordingly, the appropriate restructurings are being made there. So that was there and it will continue to happen.

Now over this if we were to superimpose the situation there, the geopolitical situation effect. Well, would it accelerate, will it decelerate the process? Well, we are not seeing any impact of that on definitely the Indian part of the business. Yes, definitely I believe so that it should augment and expose some more opportunity for us to export considering the fact that the situation that Europe will be going through with the energy crisis which is hitting them. So probably I foresee that definitely the demand for exports will continue to be there for us as well obviously because we do have an energy crisis situation in our country here, but Europe definitely is going to face lot more of it going forward.

[Unknown Analyst]

Also wanted to understand in terms of cost competitiveness globally, where would the Indian company stand vis-a-vis the other parts of the world where the parent has a manufacturing presence?

[Satish Patel, executive]

Yes, of course India is best cost country and we are able to leverage the benefit of the cost competitiveness that we have. But that certainly also depends on the product profile where we have the critical mass and the competition exists -- sorry, competence exists. So the products that I actually mentioned before -- just few minutes before, all the products we have been developing and actually present in India for quite long time now, and we have been able to further add to these products some new products like axial TRBs, then RN/RNN, [ IBB ], yes. And then we have LSB spherical bearing. These are the new addition to this product profile. All of them have been actually quite -- cost wise quite cost effective compared to the global similar type of -- for the similar type of products the global cost. So this is the best cost location and that's what has gone in the strategy as well. And therefore, Schaeffler India is becoming global manufacturing hub for standard as well as the midsize billings.

[Harsha Kadam, executive]

Just to add to what Satish said, cost is one dimension that we look at. But I think he also touched upon a brief point and I did not cover that in my presentation, but I'll definitely do. If the question has come up, I would like to answer. That we are industry leading in our R&D and engineering competency setup over here in India as well consistently and this year significant investments we are making in terms of our engineering capability on some specific product lines. And what we see is India definitely already has the base, the building blocks are already there for these product lines. And I would not be wrong in saying that for some of these product lines, the intellectual competencies would be here from India to the rest of the world -- Schaeffler world.

So we look at it from multiple dimensions. One is cost competitiveness obviously, the engineering capabilities and the design capabilities available in the country, not to mention of course other factors as well which is we were doing business, which is the government's initiatives which is also a role here as such. So all in all it's a multitude of factors that actually enables us to -- because I'm not saying India is the only country in the best cost basket. There are a few other countries like Vietnam we definitely do have. But certainly for some product lines, we believe that India definitely has an edge when compared to the other best cost countries.

[Satish Patel, executive]

And [indiscernible] where sectors in Europe have increasing cost, whereas the sector in India have more experience of manufacturing experience.

[Operator]

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

[Bhavin Vithlani, analyst]

Just continuing on the previous questions. If you could just help us with the opportunity from the mechatronics because that's where globally Schaeffler has talked about where they see a significant opportunity. What role could India play and where are we in that journey?

[Harsha Kadam, executive]

Thank you for that question. And yes, we are clearly focused on leveraging the mechatronics competencies that exist in India and rightfully so we have started to expand our footprint in India. Currently we have close to about 115 -- 130 to 150 people already on board working on various projects supporting the Schaeffler world globally. So currently the team here in India is catering to all the work that was being done in Europe. A lot of work is now beginning to flow into India. And both the software and the hardware developments have started to happen from the mechatronics center here in our Pune facility. Having said that, does it mean that Schaeffler India would not leverage this?

No, certainly we definitely would be leveraging these competencies that is now available with us. And as I already shared earlier that in our journey towards delivering products and solutions to the electric mobility sector, obviously it goes without saying that we have to develop local solutions with global competency and knowledge and with our local cost competitiveness as well. So there are a slate of projects that have been listed down, which we have started to engage with the mechatronics center trying to leverage so that the mechatronics center is not just a global offshoring center. But going forward, certainly we will have a better traction in terms of leveraging this competence that has already been invested in.

[Bhavin Vithlani, analyst]

The second question is on the wind segment. Globally the OEMs have reported losses because of cost inflation and we are ramping up this segment and we are localizing it. But if you could just help us, how are we placed in this and are we also getting impacted because of the cost inflation that the OEMs are facing?

[Harsha Kadam, executive]

Bhavin, I'm not able to answer on behalf of the OEMs. But what I can definitely answer is what we see. And yes, the OEMs will be coming under cost pressure particularly with the input cost going up across all the sectors. I don't think wind is the only sector, every sector was impacted with the input cost going up. One of the changes that you will see is -- I mean continue to see is investments from the wind customers are not reduced. They continue to invest in capacities in India as they are also going the prim way of leveraging the best cost country to manufacture here in India the wind equipment and export them out of India. Now is this going to remain where it needs to be watched? Well, every organization is now trying to find its way to see how do we manage the input cost pressures. I'm sure the wind segment -- in the wind segment too, the same thought prevails. Having said that, we do see definitely that there is a growth in the wind sector when investments do come in.

It could have slowed down when compared to the same period last year, but then definitely wind continues to still see growth. One of the factor that we must keep in mind is government's agenda to grow green and clearly with the hydrogen council that has already been formed, the production and demand for green hydrogen would only continue to go up. Having said that, both wind and solar I believe is going to play a key role going forward even within India. I have been reading in some places that the wind tariffs might go up -- wind power tariffs might go up. Well, if that happens, really that's a big booster to the wind segment, more investments to come in right now which is being ruled by the solar energy sector. So I believe that the wind definitely has a strong growth future in India as well going forward. And what we are passing through or what the wind segment is passing through could be only a hindrance that we are passing through.

[Operator]

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

[Shyam Sriram, analyst]

Sir, you just spoke about some challenges in manufacturing in Europe. Given that, is there a relook at our 3-year CapEx plan of INR 1,000 crores that we had outlined earlier?

[Satish Patel, executive]

Yes. We stay on course with what outlay on CapEx that we have announced INR 1,000 crores. This year we are going to invest close to INR 450 crores. We have already invested INR 200 crores CapEx for the first 2 quarters -- or first half was already close to INR 200 crores. We would spend another INR 250 crores in the second half, INR 450 crores. Last year we had over INR 200 crores and in next year we would have even higher CapEx outlay. So 3 years INR 1,000 crores, we still keep the same sort of overall target and we are very much on track on that. We are very much on track and we would be investing accordingly.

[Shyam Sriram, analyst]

But you're planning to raise it, sir?

[Harsha Kadam, executive]

Shyam, I was going to answer that. So Shyam, just to answer that and add to what Satish just said. We're not ruling out the possibility to do a post correction upwardly as the need arises. We will do it, yes. Right now we believe that this is good enough for us to go because CapEx spend has to be judicious and we are being judicious.

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I now hand the conference over to Ms. Gauri Kanikar for closing comments.

[Gauri Kanikar, executive]

Thank you for joining us today. If you have any further queries, please do reach to me on [e-mail]. We now conclude the call. Thank you and have a good day.

[Operator]

Thank you. On behalf of Schaeffler India Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.